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Question

Suppose the money supply in Mexico grows more quickly than the money supply in the USA. We would expect that

A The Mexican peso should appreciate relative to the US dollar Correct Answer Incorrect Answer
B the Mexican peso should depreciate relative to the US dollar Correct Answer Incorrect Answer
C none of these answers Correct Answer Incorrect Answer
D the Mexican peso should maintain a constant exchange rate with the US dollar because of purchasing power parity Correct Answer Incorrect Answer
E All of these Correct Answer Incorrect Answer

Solution

The Mexican peso should depreciate relative to the US dollar when the money supply in Mexico grows more quickly than money supply in USA.

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